Federated Municipal High Yield Advantage Fund (C) FMNCX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni National
As of 03-31-2018

Highlights

  • The fund’s total return for I shares during the first quarter was -0.45% versus 0.17% for the S&P 25% A and Higher/25% BBB/50% High Yield All 3-Year Plus Sub-Index
  • The positive impact of the fund’s short duration and sector allocation was offset by yield-curve positioning, credit allocation and low Puerto Rico exposure
  • The fund’s duration remained short to the S&P Municipal Bond Index. Credit allocation was slightly weighted toward higher quality due to a limited supply of attractive high-yield bonds

Looking Back

Municipal bond and Treasury yields climbed higher as the Federal Reserve (Fed) raised short-term target rates at its March meeting amid the ongoing U.S. economic expansion. Concern that the Fed may excessively tighten monetary policy and the prospect of escalating trade conflicts as the Trump administration proposed targeted tariffs caused stock markets to decline and Treasury and municipal yields to retrace somewhat from their highs during the quarter. The new issuance of municipal bonds fell about 30% during the first quarter compared to the same period last year as the acceleration of deals into the fourth quarter of 2017 to beat the tax legislation left a diminished calendar of financings. Demand for municipal bonds was somewhat muted as banks and insurance companies reacted to the large corporate tax cut by selling a portion of their municipal holdings. Also, individual investor demand for bonds and municipal mutual funds was muted as total returns turned modestly negative.

Yields on AAA-rated 2-, 10- and 30-year municipal securities increased 9 basis points, 44 basis points and 41 basis points, respectively. Yields on 2-, 10- and 30-year Treasury securities increased 38 basis points, 33 basis points and 23 basis points, respectively.

The S&P Municipal Bond Index posted a loss of 0.92%. The 3-year component of the index posted a return of 0.15%, while the 10-year component returned -1.58% and the portion of the index maturing in 22 years and longer returned -1.27%. The AAA/Aaa component of the index returned -1.14%, the A-rated component returned -1.08% and the BBB-rated component returned -0.65%. The S&P Intermediate Municipal Bond Index posted a return of -1.09%. The S&P High Yield Municipal Bond Index returned 1.29%, but rose 0.43% when excluding sharply outperforming Puerto Rico bonds.

Performance

  • The fund’s total return for I shares during the first quarter was -0.45% versus 0.17% for the Sub-Index

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. Other share classes may have experienced different returns than the share class presented. To view performance current to the most recent month-end and for after tax returns, click on the Performance tab.

Click the Performance tab for standard fund performance.     

Performance Contributors

  • The fund’s duration was short to the S&P Municipal Bond Index, which helped its relative performance as rates rose during the quarter
  • The fund’s sector allocation was a net positive contributor, with an overweight in Incremental Tax bonds standing out

Performance Detractors

  • The fund had a relatively low exposure to Puerto Rico bonds, which have generally been a positive over the last few years. But Puerto Rico rallied during the quarter, so the fund’s low exposure caused it to lag the S&P Municipal Bond Index
  • Credit allocation, particularly an underweight in bonds rated less than B- and an overweight in A-rated bonds, was a drag on performance
  • The fund’s positioning on the yield curve, with an overweight in longer-maturity bonds, also detracted from performance

How We Are Positioned

The fund’s duration remains short to the S&P Municipal Bond Index. Credit allocation is slightly weighted toward higher quality due to a limited supply of attractive high-yield bonds.